ap macro - chapter 2

circular-flow diagram (what is the graph → not what’s on the graph)

a cisual model of the economy that shows how dollars flow thorugh markets among households and firms

firms → markets for factors of production

wages, rent and profit

markets for factors of production → households

income

households → markets for goods and services

spending

markets for goods and services → firms

revenue

firms → markets for goods and services

goods and services sold

markets for goods and services → households

goods and services bought

households → markets for factors of production

labor, land and capital

markets for factors of production → firms

factors of production

PPF

a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology

why are there bow shaped ppf graphs?

because of specialization

points on the PPF line

EFFICIENT levels of production

points above the PPF line

the economy CANT produce the combination of items because of scarcity

points under the PPF line

INEFFICIENT levels of production

a reason for the economy being under the PPF line is..

unemployment

microeconomics

the study of how households and firms make decisions and how they interact in markets

macroeconomics

the study of economy-wide phenomena, including inflation, unemployment, and economic growth

positive statements

claims that attempt to describe the world as it is

normative statements

claims that attempt to prescribe how the world should be